Tax break for risk takers' shares

Start-up businesses yesterday welcomed new tax breaks on share option schemes, but were disappointed that changes will not come into force for nine months.

Under the new rules, small businessess will be able to offer share options to all employees. The previous limit was 15 key employees. The former £100,000 limit for individual option allocations will be removed, and the total value of share options that a company can issue will be raised from £1.5m to £2.5m.

The scheme, the enterprise management initiative, is aimed at high-risk and e-commerce companies and is far more generous than the company share option plan (Csop) operated by larger companies.

Under the EMI, workers who join start-up companies will be able to exercise their options at any time - there are no rules preventing people cashing in before three years in the style of Csops - and there is no income tax on the gains made. Capital gains tax has to be paid, but this can be reduced to just 10% if the em ployees hold the shares for four years or more.

For someone joining a company who is offered 100,000 £1 share options that rise in value to £3 over four years, the employee makes a gain of £200,000, and will have to pay less than £20,000 in tax.

The inland revenue says it will consult on the proposed changes, delaying implementation until July next year when the 2001 Finance Act comes into force.

BDO Stoy Hayward director Jonathan Davies said: "This is good news for start-ups, but the time delay is a touch frustrating."

The chancellor is now expected to face pressure to reform Csops. Diane Hay of Proshare, the organisation that promotes wider share ownership, said: "Although the changes to EMI are very favourable, the limits on Csops are now very low compared to other countries."

But Ms Hay welcomed further help for companies to relieve them of the potentially huge national insurance liabilities that plague employee share schemes. Legislation will be brought forward to allow companies to settle NI liabilities early rather than letting them rise as share prices rise.

About this article

Pre-budget statement: Incentives

This article was published on
the Guardian website
at 07.12 EST on Thursday 9 November 2000.
It was last modified at 07.12 EDT on Friday 14 September 2007.
It was first published at 21.15 EST on Wednesday 8 November 2000.